Senate body rejects increase in income tax rates from July3 min read

ISLAMABAD: The government suffered on Wednesday its second defeat as a Senate panel rejected a proposal to increase income tax rates for individuals effective July 2018.

The decision of the Senate Standing Committee on Finance will not only weaken the government’s case, but will also strengthen hands of those who may challenge in courts the proposed increase with retrospective effect.

The government wants to increase the income tax rates for the salaried class and business individuals from the start of fiscal year 2018-19 in July.

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The standing committee was of the view that enforcing the new income tax rates from July would be a violation of Article 264 of the constitution.

Headed by Senator Farooq H Naek of the Pakistan Peoples Party, the committee rejected the proposal with a thin majority of 3-2.

It instead recommended that the government should enforce the increase in tax rates from the date the president would give his assent to the Supplementary Finance Bill 2018. This means the new rates will be applicable from October.

In case the government accepts the committee’s proposal, it will suffer a revenue loss of Rs6.5 billion for July-September 2018.

The PML-N government had drastically reduced the income tax just two months before general elections, giving a benefit of Rs90 billion to salaried and business classes. Now, the PTI government has proposed that the maximum tax rate for salaried persons should be increased from 15% to 25% and for the business community from 15% to 29%.

It wants to implement the decision from July aimed at collecting at least Rs26 billion in FY19. The standing committee has already endorsed the proposal of increasing the income tax rates with a condition that the maximum rate for the salaried class should be 20% and for the business class 25%.

“Courts have held that tax liabilities cannot be increased retrospectively, but only parliament has this right, which also has to explain the rationale in clear terms,” said Naek.

“The government strongly feels that there is no legal bar on increasing the income tax rates retrospectively,” remarked Hammad Azhar, Minister of State for Revenue.

PML-N senators – Haroon Akhtar Khan and Musadik Malik – stated that the government could not abuse the rights of people by increasing the tax rates with effect from July. Khan cautioned that taxpayers could challenge the move in courts, which may jeopardise the government’s tax-increase plans.

For the third consecutive day, the standing committee held a heated debate on the government’s proposal to lift the ban on purchase of new cars and property by non-filers of tax returns.

The government came up with another excuse that stopping people from buying assets was in violation of the constitution and was also an infringement on the rights of provinces.

Hardly five months ago, same officers of the Federal Board of Revenue (FBR) and law ministry were giving arguments in favour of imposing the ban. But with the change of government, these officers also changed their stance.

Haroon Akhtar Khan said if the government was forced to allow non-filers purchase of assets, then it should also lift the ban on opening new foreign currency accounts by such people. “The market feels that the government is under pressure from different lobbies,” he said.

The revenue minister pointed out that the government was still trying to find a middle ground where only those people could be stopped from purchasing assets who were required to file tax returns but were not meeting the obligation. He said one option was to lift the ban but impose heavy taxes on the non-filers on purchase of vehicles and real estate.

(This news/article originally appeared in The Express Tribune on September 28th, 2018)